Mobile Messaging Offers a Lifeline for Korea’s Naver

South Korean Internet giant Naver continues to benefit from its foothold in mobile chat.

On Thursday, Naver reported net profit of 128.9 billion Korean won ($126 million) for the three months ended March 31, an 18% decline from the year-ago period — but an 18% gain once discontinued operations like Naver’s spun-off gaming business are stripped out.

Line

A large reason for the overall growth in profit and in revenue — year-on-year sales jumped 24% — has been Naver’s mobile messaging service Line, which is dominant in Japan and aggressively expanding in Southeast Asia.

Of course, South Korea has its own dominant messaging app, KakaoTalk, whose ubiquity on South Korea’s smartphones has given its operator Kakao Corp. an entry into the worlds of gaming, advertising, merchandise, media and even mobile payments.

For Line, the strategy has been similar, though with a global audience of 400 million users, its scale is more than double that of Kakao’s, which has about 140 million users.

Line makes money from selling virtual stickers that chat users send to one another and virtual gaming items, which generates revenue that Naver shares with game developers.

As Line added 10 new games and another 100 sets of stickers in the quarter, Line’s revenues more than doubled from a year earlier to 145.2 billion won, the company said.

Line now accounts for about 23% of Naver’s total sales; a year ago, Line’s contribution sat at about 10%.

The gains at Line come as the business that Naver is best known for in Korea — its Naver.com Web portal and search engine — continues to show signs of slowing momentum.

In the first quarter, Naver’s core business of selling search ads showed a 5% increase in revenue from a year earlier, as clicks edged up 3%.

Display ads on traditional computers fell 14% from a year earlier, as users increasingly move to mobile. But the smaller mobile screen — even on Korea’s oversized phablets — continues to hinder growth in display advertising, with just 9% of total display ad revenue coming from smartphones.

Shares in Naver were off by about 1.6% in midday trading amid a slight uptick on Seoul’s broader Kospi Composite Index.